A Business that Uncle Warren would just love!

Found: an IPO that "Uncle Warren" would just love (at the right price of course!)

Canada's most-populous province, Ontario has announced that they will be selling off their interest in the electronic provincial land titles registry, Teranet. Teranet, partially owned by Teramira Holdings Inc., is reportedly ready to push out its prospectus this week, which should be available on Sedar (Canadian equivalent to Edgar), very soon. It is reportedly to be structured in a Canadian income trust format, which eliminates or minimizes corporate taxes. Income trusts have become a favorite of Canadians and Canadian companies over the past few years, with many former corporate entities converting to an income trust.

Teranet is the kind of business that Warren Buffett would just love, since they hold a monopoly on the registration of land title transactions that go on in the province. Just the kind of toll booth that Warren loves.

Teranet charges fees ranging from $18 for an electronic search, to $70 to register a mortgage document. It currently has 750 employees. In 2003, the last year that its operational results were made public, it sported an operating profit for $118 million on revenues of $190 million. Last December, Standard and Poors raised its credit rating to double-A, and noted that $100 million had been taken out of the company during the past year. If Ontario continues growing at the rate demonstrated over the latest available five census years (1996-2001), at about 1.2% annually, combined with revenue increases at or above the rate of inflation, this is a very nice-looking business indeed.

RBC Dominion Securities is leading the offering, and initial reports state that shares are expected to be priced at $10 (CDN) per share level, with initial annual cash distributions projected in the $0.70 to $0.80 range, thus yielding 7-8%. If this is actually the case, I would expect that yields will show a quick decline to the 5% to 6.5% range, as the secondary market quickly reprices the shares to reflect the relative safety and security of this offering. (For comparison purposes, the Yellow Pages Income Trust - probably a lower quality business - sports a 6.4% yield currently).

Over the long haul, given that all land titles have to be registered here, the business looks like a great medium to long-term situation, that should offer the opportunity for above-average returns.

Monopolies: Businesses that Uncle Warren just loves. Maybe you should too!


JW

The Confused Capitalist